The Economic Case for Unions, (and how they help us all)

By BJ

In economics, you are taught to look at the labor market as though it was no different from any other market, in which the forces of supply and demand determine the price and quantity. In a perfect world, competition would result in everyone earning their marginal product of labor, a fancy way of saying you’d get paid what you’re worth.

Nearly every conservative rant against unions or raising the minimum wage begins with that assumption. This would be a good example of that. Living wage legislation is “little more than another welfare program”, and accepting unionization akin to drinking kool-aid at Jonestown.  After all, if you allow for competition, everyone gets paid what they are actually worth and minimum wage laws and unions interfere with that, right?

Of course, the world is far from perfect, and a large part of the reason it isn’t is that one of the underlying assumptions of a competitive economic system that results in an equitable and fair distribution of resources is that the parties to every contract are equals.

An employer-employee relationship is not one of equals, particularly when you are job-hunting. Rare are the times where the power is tilted the individual employee’s way. A year or two ago in Fort McMurray would be an example, where both the cost of living, isolation, and surplus of very high-paying tar sands jobs meant that companies like Wal-Mart found themselves forced to limit their hours of operation and possibly be forced to shut down due to a lack of people willing to work for their incredibly low prices. Of course, with the collapse in oil prices, that may not be the case much longer.  More typically these days, one of the stories at memeorandum a couple of days ago noted that for 8,000 positions in the Obama administration, there are 300,000 applicants. In environments like that, what kind of bargaining power do you think the average worker has compared to their employer?

The more common reality of the employer-employee relationship can be seen in today’s news with the announcement that one of the most notoriously anti-union corporations on the planet, Wal-Mart, is settling a whole host of class-action lawsuits brought against it by its employees for multiple violations of nearly every labor law and all of the even minimal obligations our anti-union conservative friend above said that employers do owe their employees.

An employee making minimum wage or little better is in no position to bargain effectively with a multi-billion-dollar multinational corporation like Wal-Mart, and, as is the case in most inherently unequal relationships, abuse tends to follow. As much as our conservative friend bemoans the mostly fictitious lack of accountability for union employees who do slovenly work and violate regulations, the fact that it is nearly impossible for individual workers to hold their employers accountable for violations should lead to the same conclusion, committing of these violations with increasing frequency, as today’s Wal-Mart decision shows.

(And before someone blathers on about how this decision shows that Wal-Mart has been held accountable and thus individual employees do have some recourse, please note that the above cases were all class-action lawsuits, brought collectively against the corporation, and even then with considerable outside assistance. And I’m willing to bet that very few of those employees who brought up the abuse cases against Wal-Mart still work there. One employee versus the corporation equals bug-squashing time. Plus, let us not forget that most of those labor laws exist in the first place due to the battling of striking workers from back in the days when such things were illegal and worthy of having the police and National Guard called out to bust up and occasionally kill said strikers. Or, “another form of welfare” forced upon us all by the damned socialists.)

Anyway, back to main point, collective bargaining is born to offset the power of large employers versus tiny employees in labor negotiations. One employee can do very little to affect a large corporation, but all of them combined can at least force a Mexican stand-off by shutting down its operations. Unions put the relationship between employer and employee on a more level footing, and are therefore the proper economic answer to corporations in moving towards a more equitable and efficient distribution of resources.

Read Jonathon Cohn’s article on the auto union’s evolution and note the conditions on the factory floors before the unions were recognized. Not too surprisingly, employees lived in fear of their supervisor’s capriciousness, particularly when times were rough and jobs were tight.   And it required government legislation before the unionization efforts were finally recognized and the start of halfway sane labor laws began to take shape.

Cohn’s article also notes that the UAW was behind nearly all of the progressive “welfare-state” reforms of the intervening decades up to the 1970’s, which I figure explains a great deal of the Republican anger towards them. That legacy is a large part of what the non-unionized work force owes them. Most of the labor laws Wal-Mart is paying off former employees for violating wouldn’t even exist without the unions efforts.

The second part of what non-unionized employees owe the unions is the competition they provide. Or perhaps that should be worded, the fear of competition they provide. From Cogitamus, this story from the LA Times:

But what the foreign car companies want is to level -- which is to say, wipe out -- the union. They currently discourage their workforce from organizing by paying wages comparable to the Big Three's UAW contracts. In fact, Toyota's per-hour wages are actually above UAW wages.

However, an internal Toyota report, leaked to the Detroit Free Press last year, reveals that the company wants to slash $300 million out of its rising labor costs by 2011. The report indicated that Toyota no longer wants to "tie [itself] so closely to the U.S. auto industry." Instead, the company intends to benchmark the prevailing manufacturing wage in the state in which a plant is located. The Free Press reported that in Kentucky, where the company is headquartered, this wage is $12.64 an hour, according to federal labor statistics, less than half Toyota's $30-an-hour wage. If the companies, with the support of their senators, can wipe out or greatly weaken the UAW, they will be free to implement their plan.

To which Sir Charles adds:

In other words, non-union workers benefit by the very existence of the threat to unionize. Companies frequently pay wages that are only slightly below the union scale to keep workers from organizing. In the construction industry, it is not unusual for employers to pay a higher take home wage than union workers get while providing much more modest (or no) benefits. Such a strategy works particularly well with young men, who are by definition immortal, and immigrant labor, which often wants to maximize money that can be sent home to waiting families.

Eliminate the union "threat" and there is no reason for an employer to be so generous. What people seem to fail to comprehend is that any concession made in a unionized environment can be met and exceeded in a nanosecond, completely unilaterally by the non-union sector. . . .

Mark my words -- if the UAW were to cease to be a viable entity because of what the Republicans are doing, the wages of the workers at the foreign-owned auto plants in the U.S. will be cut in half within a short time -- exactly the wrong recipe for an economy that is seeking to recover.

The anti-union forces like to add the legacy costs of the Big Three to the current workforces compensation to make their case that union employees are overpaid.  As noted above, the reality is that they are no better paid than their competitors, because if they were, resentment and envy would likely start turning to thoughts of opportunity, and all the anti-union propaganda and corporate-friendly legislation in the world wouldn't have kept the foreign auto plants non-unionized for long.  Their good wages are a testement to the union's power.

Yesterday, Fester noted the “Bugger Thy Neighbour” philosophy driving individuals these days, where it is collectively in our best interests for people with disposable income to spend it, but individually prudent to hoard your own money for the plausible bad times ahead. Over at The Beav’ is the corporate version of said philosophy.  The economy as a whole requires a large number of people making decent wages and thus having disposable income to spend, while individually companies would like to lower their own labor costs by paying their workers as little as possible. In a sense, companies that pay good wages subsidize those that don't, at least until a tipping point is reached and the pool of well-paid workers is no longer large enough to support poorly paid production. Individual self-interest leads to collective ruin, and it is important to note that both cycles are self-reinforcing, as the worse things get, the more people wish to hoard and the more companies look to cut costs. This is probably why anarchy never really caught on as a political option.

Governments can't, or at least in my opinion shouldn't, be able to force people to spend or invest their wealth, though they do fiddle with interest rates and tax codes to make certain options more attractive. On the other hand, minimum wage laws and allowing the formation of unions, (as it allows the formation of corporations), are well within government's mandate, and should allow for some collective action and more sound economic bargaining to soften the impact of the coming downturn.

Comments

[Peter G.]

Good post. You make a very persuasive case for unions. Our current system has its' problems though. What, for example, do you do when both management and unions behave like idiots. It happens. The adversarial system that serves us reasonably well in our judicial system doesn't answer nearly as well when it comes to union/ management relationships. The UAW has a noble history but they are not without flaws. An excellent case in point involving the UAW is the creation of the CAW. This occurred because the UAW was quite prepared to sacrifice the interests of their Canadian members in order to repatriate jobs to the US. That certainly wasn't very ethical was it? They kept the dues they collected on behalf of those Canadian workers too.

[BJ Bjornson]

Hey, I said that unions act as balance against massive employers when it comes to negotiating employment contracts, not that either of them necessarily make for good negotiators, or have some kind of inherent morality and ethics. The only ethical consideration here is that people tend to be more careful about screwing over someone who has the power to hurt them for it.

As for the "behave like idiots" things, from what I've read, the current Ottawa transit strike counts as an example. Theoretically that's when you need to bring in mediators and/or arbitrators to settle things, and hopefully to boot the idiots out before the next round of negotiations so adversarial doesn't have to be the way of things

[Peter G.]

I completely concur with your latest comment. I wasn't overly familiar with the transit strike but I googled a little info and I'd say that qualifies as first class stupid. The question I find interesting is whether or not labour or management ever consider at what point the short term negotiating positions they take become toxic to their long term interests.

[Rudi]

Guess where most union auto are now - in Canada. Their single payer insurance makes Canadian plants more competitive that the plants in the US Rust Belt.

[Kat]

Higher Wages or Bubblenomics: What's it gonna be?

Wages, wages, wages. It all gets down to wages.

A strong economy must be built on a solid foundation of steadily rising wages. If wages don't keep pace with production, the only way the economy can grow is through the expansion of debt, which leads to disaster.

Consider this: the US economy is 72 percent consumer spending. That means the Gross Domestic Product (GDP) cannot grow if salaries don't keep up with the price of living. Low Income Families (LOF)--that is, any couple making less than $80,000--represent 50 percent of all consumer spending. These LOF's spend everything they earn just to maintain their present standard of living. So, how can these families help to grow the economy if they're already spending every last farthing they earn?

They can't! Which is why wages have to go up. The cost to short-term profits is miniscule compared to the turmoil of a deep recession which is what the world is facing right now. The present crisis could have been avoided if there was a better balance between management and labor. But the unions are weak, so salaries have languished while Wall Street has grown more powerful, stretching its tentacles into the government and spreading its anti-labor dogma wherever it goes.
More at the link...

Looks to me like the only alternative is for us to starve and decrease the surplus population, which, as BJ pointed out, is just fine with the corporations and their government.

[Kat]

Time for a World Workers Union?